coles – Clover Hill Diaries – Join Me and Be the Change

Coles and Woolworths – will we vote with our wallets

I have been thinking about the brave people who have stood up to Coles and were counted on behalf of farmers and suppliers everywhere.

Coles CEO John Durkan at the $80m Devondale Dairy facility opening in Laverton Photo The Australian See story here

The whistleblowers who have gone to the ACCC and achieved these outcomes ‘Humbled Coles admits it did wrong’

FOOD and liquor giant Coles faces penalties of $10 million and may have to pay as much as $16m in refunds after admitting that it engaged in unconscionable conduct with small grocery suppliers.

In an embarrassing mea culpa, Wesfarmers group managing director Richard Goyder and Coles managing director John Durkan apologised unconditionally for the retailer’s dealings with suppliers after reaching a historic settlement with the Australian Competition and Consumer Commission (ACCC).

“I believe that in these dealings with suppliers, Coles crossed the line and regrettably treated these suppliers in a manner inconsistent with acceptable business practice,” Mr Durkan said.

“Coles sincerely regrets and apologises for its conduct in these dealings.”

I was talking to some-one just a few weeks ago who participated in a series of supplier roundtables Coles CEO John Durkan played an active role in. This person said Mr Durkan was laughing and joking like he didn’t have a care in the world

Looks like he knew he had Wesfarmers support no matter how the case turned out

Mr Goyder said both Wesfarmers and Coles “sincerely regretted” the unacceptable conduct, but voiced his support for Mr Durkan, dousing concerns he would be forced out for playing a major role in one of the cases brought by the ACCC.

Now its Woolworths turn to provide answers to the ACCC, See story here Woolworths accused of bullying Suppliers

WOOLWORTHS has been accused of bullying suppliers into paying millions of dollars to fund a discount war, prompting the competition watchdog to examine whether the supermarket giant is in breach of competition and consumer laws.

How brave do these supermarket suppliers whistle-blowers have to be. Its not as if they alternate channels of distribution the size of Coles and Woolworths in this country. They are the courageous people who are prepared to stand up for what is right first and foremost

I have appeared before the Senate Inquiry on Milk Price. It wasn’t much fun. I have even supported a fellow farmer who went to the ACCC about what he ( and I ) believed was unconscionable conduct towards a number of dairy farmers. He had been fighting this cause for quite a while and he told me all he needed was one or two more farmers to to back him up. . No matter how much proof we got it was obvious we were wasting our time. Those were the days before Rod Sims headed up the ACCC.

I have even been threatened. I remember the day well. The phone call came through the morning after I won the Bob Hawke Medal. I remember smiling to my self when I saw who the caller was and actually said I cant believe XXX would be the first person to ring and congratulate me . Well he wasn’t, he was threatening to sue me for something I said at the senate inquiry. That was a very traumatic day spent on the phone to my lawyer to see if he had a case which of course he didn’t. But it left a nasty taste in my mouth and I am in awe of the whistleblowers who start the process and remain in it for the long haul

And sadly do consumers really care?. Do we stop shopping in Coles and Woolworths.? Will this effect their bottom lines?. Will they just find more and less obvious ways of putting pressure on their suppliers?

You know what I think. I think many of these whistleblowers are Woolies and Coles staff. It must be very tough being asked to do things you know in your heart are wrong. I will guarantee not too many of them are laughing and joking when they reflect on the consequences on the actions of their employer,

This Christmas as I have a glass of wine and share Christmas with my friends I will toast the brave whistle-blowers and the ACCC and hope that we as consumers will find some way of making their efforts worthwhile

Getting into bed with Coles may just mean you wake up with a spring in your step

I have been meaning to write this post for some-time but wanted to cool down before I did. But some-one has got to throw this line of thinking out there for comment and I think I am emotionally strong to enough at the moment to take the flak as well as the support

This post is about the uproar that has arisen at grass roots level about Coles sponsorship of the Australian Dairy Farmers (ADF) Summit

Now I think getting Coles to fund this event (who after all are the people making buckets of money from selling milk) is a stroke of genius by ADF management.

The consensus at farmer level seems to be it is the role of the processor to fund the conference not the the people farmers believe may be the right hand of the devil

Why do I think this way of thinking is flawed?

1. Its is my understanding the processors fund Australian Dairy Industry Council (ADIC ) So through the ADIC the processors are already providing significant funding to the Summit.

2. The core business of the processor is to sell product on behalf of their suppliers and support their farmers to supply the best quality ethically produced milk they can. It goes without saying that includes a fair price for the farmers. Noting farmers can only get what the market place will pay. Seriously if farmers think processors should fund everything well there won’t be much money left in the kitty to pay us for our milk!!!!!!

3. There is huge potential for Australian dairy industry and farmers to grow their businesses and hopefully prosper. This is impeded greatly by the lack of supply chain signals farmers get. But seriously farmers have to acknowledge they should play an equal role in facilitating this knowledge transfer. Knowledge transfer requires collaboration, cohesion and real partnerships with EVERYONE along the supply chain. Sadly in the main farmers see little or no value in this two way conversation opportunity. Were we always this myopic if not why has this happened?

What a great opportunity to start that two way conversation with Coles the ADF Summit is for farmers and no-one will convince me otherwise. The only way farmers can make that decision for themselves is to turn up and play an active role in the ADF Summit. This is your chance to help design the dairy industry we should have and. I say to you don’t throw it away

Shame on you Woolworths set to sell sex toys in the milk isle

Newspapers pay people whose sole job is to come up with headings for news articles that will motivate people to buy newspapers. Woolworths latest foray into innovative fast moving consumer goods must be a dream come true for them. Despite the temptation to use the tongue in cheek clever line from Brian Dodd @bushboywhotweet that Woolworths maybe ‘artificially screwing dairy’ I wont go there in the name of good taste.

What I would like to do this morning is reflect on this article in The Conversation Worried about Coles and Woolworths – then look in the mirror and in particular these comments from the author

The greatest public concern has been the treatment of Australian farmers, particularly since the introduction of ‘one dollar per litre’ milk. So we should not be surprised that the major supermarkets have moved to stock more local produce and to set up supply arrangements that clearly benefit local farmers.

When customers complain, even retail gorilla’s listen!

Coles and Woolworths behaviour, however, highlights the underlying source of their marketing and their market power. The customers.

The two supermarket giants reached their current positions because people choose to shop at them rather than the competitors. We may rail against the closure of a small retailer when Coles or Woolworths opens up nearby, but the real cause of the closure is, well, us! As consumers, we choose to buy from Coles and Woolworths rather than the retail alternatives. We may complain but the low prices, the product selection, the convenience or whatever else, draws us in to buy at the major supermarkets and, in so doing, we slowly but surely push the retail competitors out of the market.

This is not anti-competitive; it is the very nature of competition. Businesses who best serve customers win. But when we complain, we should look in the mirror. Because it is our choices as consumers that decide who wins and who loses in the retail wars.

Put simply, Coles and Woolworths have succeeded because they are so damn good at giving us what we want!

…………. The major supermarkets are no angels. But they do respond to customers’ demands. So if you want more small grocers, you have the answer. Shop at them. But do not call on the politicians to make that decision for you.

On my previous post Coles Show Some Respect the very wise Greg Mills commented

What I found interesting about the Coles presentations was the issues management cycle slide. Coles had a ‘process’ and they stuck to it. Farmer objections where just an ‘event’ in the cycle to be dealt with. Which makes me think about what is the farmer ‘process’ to deal with these and other consumer issues. I suspect that there may not be a ‘process’ to deal with these issues by farmers and the food system, but rather the response is simply a number of events..

While I may not agree with Cole’s tactics I have learnt from this presentation and their FOCUS – Follow One Course Until Successful. I thinks it a good thing that this presentations is out there and being talked about. I hope that it gets some discussion going about how to deal with issues in the longer term.

Greg is right and I will be blunt it is not just consumers who have to take responsibility for their actions and stop expecting the government to be their white knight. Its time for farmers and Australian agriculture to convert supply chains into value chains.

Its tough out there dealing with the big 2. Is there a better current example than the latest very sad case of How private labels helped bring down Tasmania’s Tamar Valley Dairy

This company make yogurt to die for. I love it. It is divine and it appears working with Coles may have been their downfall

As Associate Professor of Marketing at Melbourne Business School Mark Ritson says in his article on Tamar Valley Dairy in BRW .

…. while around 25 per cent of all grocery sales in this country are now accounted for by private labels, in dairy categories that figure is closer to 50 per cent.

Given this proportion, it would be almost impossible for a dairy producer like Tamar Valley to grow revenues without manufacturing private labels and they aren’t alone. Almost every major branded manufacturer in Australia now makes some private label products for retailers or is trying to get a contract to start. In the case of Tamar Valley the company had clearly become extraordinarily dependent on this kind of trade supplying Coles, Woolworths and Aldi with private label yoghurts. The scale of its dependence was revealed last year when Tamar Valley’s founder and managing director, Archie Matteo, acknowledged that around 40 per cent of the dairy’s planned growth was built on a single, newly signed contract to supply Coles with private label yoghurt.

Unfortunately, manufacturing private labels is a very tricky strategic business.Private labels depend on a winning combination of prices that are 25 per cent to 30 per cent less than their branded competition but which usually return at least the same profit per unit sold to the retailer. That means that although the volumes involved in a private label supplier contract are gigantic the margins on such products are extremely tight. The nature of supermarket negotiation also means that no matter what the initial agreed supply price, there will always be future discussions on reducing it further ….

The margin pressure on private labels also means that retailers are constantly on the lookout for alternative suppliers who can offer the same quality commodity product at a lower supply price. And as private label penetration grows, more and more companies are offering their excess capacity for exactly that purpose.

The other big problem with supplying private label is the strategic schizophrenia it creates at the heart of a branded manufacturer. Tamar Valley Diary, like any other branded producer, should have had several clear strategic priorities that drove their business. They should have been focused on understanding and responding to the tastes of Australian consumers. They should have been working on product innovations to propel their Tamar Valley brand past its rivals on the shelf. And, most important, it should have been investing in and building the Tamar Valley brand to build brand equity, create differentiation and protect its market share.

The problem with private label supply is that it runs counter to all these principles. Producing private labels means manufacturing large amounts of commodity product, at the lowest possible price, without any innovation or branding considerations It also means focusing on one or two giant customers (the supermarkets) rather than the ultimate consumer for the product (you and I). As private label supply becomes an increasingly important source of revenues for a company its switches focus from branded innovation to commodity production. Its brands consequently begin to wither and fail making the company more and more dependent on private label supply to stay afloat. But, as Tamar Valley Dairy learnt this week, that’s a very fickle business to depend upon.

It would be naive to suggest that any supplier should avoid any and all private label supply. But it would be equally naive to become as dependent as Tamar Valley Dairy to sustain your business. Any company that builds their business on significant proportions of private label supply is making an enormous gamble in my opinion.

Very smart man Mart Ritson. I would love to sit around the table with him and a group of like minded farmers

In reality just how do we deliver the change that agriculture must have? For farmers this will mean working beyond traditional boundaries and challenging the conventional thinking of primary industries and individuals. It will require a paradigm shift in thinking and a collaborative re-allocation of resources and responsibilities amongst all stakeholders in the value chain.

It will require deploying agriculture’s young people into schools to build relationships with the next generation of consumers. It will need innovative and fun ways of engaging the next generation of consumers in considering the issues affecting sustainable food and fibre production.

I have set up Farming Ahead of the Curve to do just that with a a suite of programs, training and networking opportunities that will change the way farmers and consumers interact, increasing value across all sectors.

These programs will provide a supportive environment, professional development, access to inspiring leadership, first class mentoring and training.

The legacy of these programs will allow farmers of all ages to participate in, and extract greater value from the fibre to fabric and paddock to plate supply chain.

I don’t know about you but I have had enough of others defining my future for me. I say its time to take control and get my dignity back and farm ahead of the curve

Coles show a little respect

As farmers we all know its not smart to criticise our customer. In this instance the customer is Coles but I think you will all agree when you see this presentation by Coles’ general manager of corporate affairs, Robert Hadler,which he titled Coles-the Consumer Champion! A Reputation Management Case Study that Coles is not your typical customer nor fits my definition of a champion.

I mean just what sort of ‘person’ buys a product and devalues the people they bought it from and skites about how they manipulated the people they sold it too.

“every PR tactic possible to neutralise the noise” around its move to drop the price of milk in supermarkets to $1 a litre.’

The Coles Down Down Down $1 milk campaign made me livid for two reasons

Firstly it devalued our wonderful amazing cows showcased on YouTube below by dairy Young Farming Champion Tom Pearce

Tom Pearce the dairy farmer who puts the cheese on your cracker

Secondly no matter how much spin Coles put on it – the Coles $1 milk campaign almost bought the NSW dairy industry to its knees

Another of the Art4Agriculuture Young Farming Champion’s Cassie MacDonald was so incensed by Coles $1 milk campaign she penned this now iconic infographic which has had over 20 thousand YouTube hits that blew Coles original infographic out of the water ( I note Coles have now taken it down )

The Guardian makes some strong comment about Mr Hadler’s presentation here

I give you a few take outs from the article Coles boasts about media campaign to silence ‘milk war’ critics

After two years of a PR effort to persuade Australians that the major supermarkets’ “milk war” is not harming small dairy farmers, Coles has been caught out boasting about its successful media campaign to silence its critics and “win the day”.

His (Robert Hadler) presentation, entitled Coles – the consumer champion! A Reputation Management Case Study, was delivered to the Centre for Corporate Public Affairs (CCPA) in June but was no longer available to download on the CCPA website on Sunday.

It identifies significant negative “noise”, or unfavourable coverage, for the supermarket’s “Down Down” milk campaign, which peaked in the third quarter of 2011, the same year the price drop was brought in, and shows the regional press as reporting the most negative coverage in that time period.

The presentation goes on to identify the importance of guarding “against a political and regulatory response” to the supermarket’s drive to push down the price of milk. It also says that the “agri-political fallout continued after the ‘Down Down milk anniversary’”.

The presentation then details how Coles implemented new media strategies, including a social media campaign, the use of “fact sheets to debunk myths” and fresh advertising.

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It describes a “game changer” moment in the so-called “milk wars” as the implementation of multi billion-dollar ten-year deals to source milk directly with two farmer cooperatives,announced in April this year, which brought about an “immediate shift to positive coverage”.

See the full presentation here

Now you will notice this slide features some of our twitter agvocates TWT Dairy writer Simone Smith, NSW dairy farmer David Williams and the dairy industry champion of champions school teacher Lisa Claessen who is so incensed by Mr Hadlers presentation she has relaunched her petition in which calls Coles to task

Lisa says

I am not a dairy farmer, I’m a consumer in a rural area who has seen the fallout in my community. My inspiration came from two young men whom I taught, from a dairying family, and an insight into the struggles they were ensuing as a result. I am not anti – supermarket. I live in a region that relies on them. All I would like to see is a fair go, a compromise from Coles, that reflects the consumer’s desire for value, and allows the dairy farmer to operate sustainably. We need to support these guys so they can continue to deliver a beautiful product which we often take for granted.

I read something this morning that left me gutted for our Aussie dairy farmers, and as I read through, I couldn’t help but feel angered…
I leave you the link to peruse –http://www.documentcloud.org/documents/800088-reputation-coles.html#document/p5
This document has been doing the rounds through the media and on tv.
A tweet regarding this petition appears on one of the pages, along with a triumphant tone from Coles, congratulating themselves on the outcome of their patience with the objection over discount milk pricing.
Along with a wish for a desperately needed Code of Conduct for Supermarkets, I have a strong desire to carry on with this petition.

Please pass this petition on to someone else to read and sign. If we can pump up the petition numbers further, we are sending a message to Coles, especially whilst there is media attention, that our farmers have been treated shabbily and without consideration. The above document is most telling.
Yours
Lisa Claessen

Coles I don’t know what your definition of champion is but as far as integrity, authenticity, commitment, aspiring to excellence in my mind our Aussie farmers will win the red, blue and white sash everyday

When all the power lies at the top of the supply chain the country loses

I have reprinted this great post from Jan Davis CEO of Tasmanian Farmers and Graziers found here

Farmers fight for balanced diet

August 23, 2013

Wesfarmers, owner of the Coles supermarket chain, last week announced a $2.26 billion net profit for 2012/13, aided by Coles’ contribution of $1.53 billion, 13 per cent up on the year before.

That’s good. We want to see Australian companies making healthy profits.

However, I’m bemused by the comments made by the bosses of both Coles and Wesfarmers that, despite their Down Down, Prices are Down campaign that has seen food inflation as low as 1.1 per cent, Australians are still paying too much for our food. They intend to cut prices more.

If you look at where we stand internationally, the argument is unsustainable. In Australia, we now spend about 10 per cent of our incomes on food – which is one of the lowest levels in the world. According to a study undertaken by the Washington State University, this is less than consumers in Scandinavia, where people spend an average of 11%. In China, consumers spend 39 per cent of their earnings on food; the figure is 44 per cent in Indonesia. If you lived in Azerbaijan, you would spend 48.5 per cent of your income on food.

Even more importantly, the proportion of our income that we spend on food has continued to fall each year in Australia, whilst our average incomes have risen. According to government surveys, our proportionate spending has halved in thirty years. People now consider to be basic essentials that previous generations could only dream of – flat screen TVs, brand new cars, overseas holidays, private school education etc etc – and that means there is less money directed to food spending.

I understand these are average figures, and some Australians are worse off than others, but we are not exactly at risk of starving, are we? At some point, we need to recognise the unalterable fact that you get what you pay for – and it is simply not possible for Australian farmers to produce safe, nutritious, quality food at ever-diminishing prices.

It’s not rocket science to work out that Australian farmers can’t defy the forces of gravity – they can’t continue to survive with increasing input costs and decreasing farm gate returns. Everyone knows that $1 per litre milk is not sustainable. The only way retail food prices in Australia can continue to fall is if supermarkets import more and more cheap foreign products that don’t meet the standards we expect in terms of safety and quality. Is that what we want?

The Australian Competition and Consumer Commission seems to be in a constant state of scrutiny of the supermarket behaviour: whether they exercise unfair market domination for groceries and petrol, or their alleged bullying demeanour towards suppliers. Yet nobody seems to be able to address the real issue – that the Australian grocery marketplace is distorted because of the Coles and Woolworths’ duopoly.

We all know that increased profits for the supermarkets, and cheaper food prices for consumers, come at a cost. And we all know that it is Australian farmers who end up paying these costs in food prices.

Our beef is that, at the bottom of the food supply chain, it is Australian farmers who are getting screwed on price. Studies show that, while we live in an affluent society that pays less each year for food, 86 per cent of shoppers are still driven by price.

We need a reality check here. There has to be an equitable balance between returns to farmers, the prices that retailers charge consumers, and the profits that those retailers make.

Profit is not a dirty word. It is good for Australian companies – including supermarkets – to make a profit. However, farmers run businesses too – and they should be able to expect to make a reasonable living in return for their hard work and investment.

Contact Jan Davis
0409 004 228

The world and your customers are watching Coles. Will you deliver?

I have sat in on many meetings since the Coles/ Murray Goulburn 10 year deal was announced and there are a lot of wise people in the dairy industry very concerned that Murray Goulburn has bitten of more than they chew by getting into bed with Coles. I hope they are wrong

Dairy Farmers Milk Supply Cooperative Chairman recently said in an open letter to farmer suppliers

The Coles media assault says that Coles want to look after Australian dairy farmers, that they want farmers to have security of tenure, that there will be an increase in milk prices and a premium over current regional milk pricing, and that they expect milk to be sourced locally for MG contracts.

Macquarie Equity analysts inform that there has been a reduction in wholesale price into Coles so there are real questions as to the transparency of it all; what will be the price set and the price premium. It is a question of what is the money and where will it come from. Let us not forget that Coles also said that $1 milk would not hurt farmers. Coles has the media story, will their new partners deliver? In truth it is a test for Coles to deliver.

Many are saying that the Australian dairy industry is entering the perfect storm. Milk’s heartland Victoria is under extreme pressure from dry conditions, and no real break in the weather is predicted before mid-June and the weather is turning cold, a dire combination that means there will be a shortage of grass to feed cows. On top of this 4% of Australia’s milk supply has rumoured to have gone into receivership

Milk supply in NSW is predicted to drop below 1 billion litres for the first time ever

Source Dairy Australia

Large processors supplying the domestic market are hurting

It is in this market that Lion has no return on capital in the milk division, low EBIT margins and has written off approximately two billion dollars.

Fonterra is realigning their Australian business, changing its consumer brands as the retail price war in milk begins to bite into its profits. EBIT from its Australian consumer brands fell 31 per cent.

Fonterra Chief Executive Theo Spierings said that “there’s a new reality in Australia,” and that Fonterra is facing “aggressive competition” in milk supply and, with a retail price war in Australia; it has to ensure its supply chain is cost-effective.

Fonterra currently has 21 brands in Australia, which has room for a maximum four or five, he said. It was too soon to say what plants or jobs losses may result, though Mr Spierings noted the company has a wide variety of yoghurt brands and also faces pressure in the milk market.

On a positive note the Global Trade Weighted Index for all dairy all around the world has gone sharply upward.

This is likely to mean that the tanker after tanker load of milk that is currently coming up from Victoria to fill the milk shortfall in NSW and Queensland will stay in Victoria for export

Seasonal conditions have been part of the perennial challenge and there is no doubt adverse climatic conditions are harder to handle in our dairy businesses that ever before. This goes for all of agriculture, there is simply less room for failure.

The fact that dairy is tougher than ever is evidenced by the tough climatic events causing farmers to exit the industry. We are running out of reserve, both in terms of cash but also equity, and the ability (and incentive) to borrow.

The national industry is not growing; the pincer of cost and revenue is tightening. When tough times such as floods and dry spells occur, low levels of farmer confidence result in some questioning why they would battle on again for this uncertain future. For this reason among others, the assurance of better terms for longer term is an imperative for farmer confidence and viability. said the DFMC Chairman

Tomorrow I am attending yet another review with a very large regional business that relies on our region prospering. What heartens me is there are many people big and small out there who care about our farmers and they are working side by side with us on the solutions

Yes indeed Coles you do appear to have trumped Woolworths with your latest media story, but no-one is forgetting you lied when you said that $1 milk would not hurt farmers. In fact its got to the point where it is hurting consumers and the country as a whole

The world and your customers are watching Coles. Will you deliver?

Is Coles finally seeing the error of its ways?

Ominously Australian farmers and agricultural businesses are struggling to survive in a market that seems all against them.

Today the Australian Government officially acknowledged Australian farmers are in crisis announcing their Farm Finance package which aims to build the ongoing financial resilience of farmers who are currently struggling with high levels of debt.

Image ABC

As reported by the ABC here Agriculture Minister Joe Ludwig says

“It is important. What we’ll do is boost assistance to farmers because many of them are struggling under acute levels of debt and with the high dollar, depreciation of land values is putting significant pressure on many farmers,” he said.

“When you discuss these issues with parts of the agricultural sector, including the banks, they are experiencing some higher debt pressures out there due to some lower land valuations, lower product prices, and high input costs.

“All of that is making it, right at this time, a little difficult for farmers to continue to compete in some sectors’

The writing has been on the wall for quite some time and the media has been full of bad news stories

This excellent story from the Conversation reflects on what it calls the “farm problem”

Lying at the heart of the crisis facing the WA growers, and impacting on rural enterprise across Australia, is what has been described as the “farm problem”. The problem is caused by the interplay between rising agricultural productivity and the inelastic nature of food demand.

This has led to continual decreases in real farm prices and decreasing returns to farmers. Increasing competition in the food market has meant that any efficiency gains made by producers within their farm businesses are actually captured more by the consumer than the producer.

To counter this trend farm enterprises have sought to expand their area of production, develop new or additional crops or pastures, or grow large via the amalgamation of farms. This has led to the “get big or get out” mindset that has occurred across many of our rural areas in past decades.

However, many farmers lack the financial capacity or the opportunity to expand their business operations. This will result in a few much larger farms and the smaller farms that still exist will generate only minimal income.

This extracts from a recent article BRW ‘Australia’s rich walk off the land in the great farm sell-off ‘

Farms around the country are struggling and the sale of big assets by some of our richest farmers suggests that more problems may lie ahead for the agriculture.

The big opportunities on offer to feed the fast-growing Asian region are at risk as many farmers – large and small – struggle to pay their bills.

Rural landholders and livestock owners are staples of the BRW Rich 200 but a culmination of factors – including the high Australian dollar and concerns about the viability of the live export trade – are pushing down the value of their businesses.

Many are choosing to sell down their stakes, or have already done so.

‘The idea that the Chinese can come down here and create corporate farms and invest the capital well is nonsense.

“We need people in Australia who understand agriculture, who are able to use that capital well and make money out of it.”

Few are better at doing so than the farmers on the Rich 200, most of whom have long-held interests in major rural assets.

They have a deep understanding of the industry and are better-placed than most competitors to ride out fluctuations in the commodity prices and market conditions.

Rich farmers have been the mainstay of the agricultural industry for decades and their willingness to hold course may be critical if lofty growth targets are to be achieved. If more choose to sell, questions will be raised about whether recent poor conditions are part of a normal cycle or symptomatic of a more fundamental shift in the viability of the agricultural sector.

Maybe just maybe Coles is starting to see the error of its ways but is it too late for the Australian dairy industry as the banks appear to be seeing through the spin. See Financial problems for Tamar Valley dairy

A report in the The Australian says the company has been forced to fund the development of a $20 million yoghurt manufacturing facility after bank lenders refused to provide debt funding to cover the plan.

Tamar is among a handful of dairy processors on whom Coles says it has conferred financial security by awarding them long-term supply contracts — in Tamar’s case, a five-year deal signed last year to supply yoghurt to be sold under its in-house brand.

But analysts including Macquarie Bank’s Greg Dring have questioned whether Coles is paying the processors enough to make an economic return — a view that would appear to be supported by banks’ unwillingness to lend to Tamar despite the apparent income security of the yoghurt contract.

What is this farmer saying? I am with finance reporter Owen Raskiewicz on this one whose recommendation for agricultural stocks are

‘At the moment, it would be wise to steer clear of the industry until it the Australian dollar lowers and trade agreements are revisited. Otherwise your portfolio may end up in a profit drought of its own’.

Sadly I also agree with Julian Krieg

A prominent Wheatbelt financial counsellor has described the current agricultural crisis as a perfect storm and he says in some circumstances it’s time for some farmers to walk away

Coles and Murray Goulburn announce their engagement

I got out of bed even before the roosters started crowing this morning as I was heading off to Perth to speak at the Agconnect Conference. I checked my emails first thing (as you do) to see if anything earth shattering had happened.

Low and behold something mind-blowing had definitely been announced overnight. Dairy farmers have been predicting Australia’s largest dairy co-operative Murray Goulburn would be storming the NSW/Victorian border since well before deregulation and overnight they did just that announcing a 10 year deal to supply the Coles home brand label

Exciting times indeed. Anybody who has met or heard MG CEO Gary Helou speak knows that here is a man who is force to be reckoned with and he certainly has an innovative big picture vision for Murray Goulburn on the world wide stage. So I for one will be watching with great interest to see if MG’s move to the domestic dark side provides a bright future for NSW and Queensland dairy farmers

Achieving this will be no easy gig. Woolworths and Coles have been rapidly increasing their stranglehold over supermarket market share highlighted by this Sydney Morning Herald article “Coles and Woollies put the screws on their competitors” ever since Coles got fair dinkum in 2008.

Woolworths is not only the most profitable supermarket in Australia, it is the most profitable supermarket in the world ( Coles comes in third after Wal-Mart)

Will the Coles and MG partnership be a marriage made in heaven?. Time will tell. What I do feel is this move by Murray Goulburn is the change we desperately needed to happen. If his reputation is anything to go by Gary Helou is just the man we need to show the leadership and drive required to ensure dairy farmers supplying Coles get a fair deal

Just a quick reflection on this race to the bottom marketing strategy Coles and Woollies are determined to play out I am with Naked’s Adam Ferrier when he says

“Being the cheapest is a promise to nowhere. I fear the current marketing strategy is buying footfall, whilst eeking out anything aspirational the Coles brand had.

“Marketers will have a difficult time re-building the Coles brand after this current bout of Coles ‘the cheapest, daggiest, un-aspirational place to buy your groceries from’ has finished.

“You can’t just be the cheapest and sustain market share. Cheap still needs to be aspirational or fun or clever… Cheap is also increasingly starting to mean ‘we’re squeezing our suppliers’, something consumers don’t want to hear.”

So maybe this new way of doing business will be a win not only for farmers but also a big win for people power. Australian consumers have stood up and told the supermarkets enough is enough. Look after our farmers or we will vote with our very loud voices.

To see what some of the industry heavy weights have to say head on over to Milk Maid Marian’s excellent blog on this topic found here

This interesting comment from Simone Smith from the Weekly Times MG Finally Makes it Mark

Statistics are from http://www.daff.gov.au/__data/assets/pdf_file/0007/2269762/aus-food-statistics-2011-12.pdf

A job to die for

Now here is a job for a very brave person. Lion is recruiting for a National Business Manager Dairy – Coles. Personally I would rather be Julia Gillard constantly watching my back than take on this job that will surely lead to a stomach full of ulcers and antidepressants

National Business Manager Dairy – Coles

Would you like the opportunity to be the best you can be, really make a difference and have a great time doing it? At Lion, our success comes from Great people and Great Brands. We are Australia and New Zealand’s leading food and beverage company with great brands for every occasion.
We are currently looking for a talented National Business Manager to join our Coles team based at our Docklands site.
This role offers an exciting opportunity to join a motivated and supportive team of National Business Managers, responsible for driving above market growth in one of Australia’s largest retailers. This will be achieved through the development and implementation of strategic business plans, leveraging category insights and driving a promotional program to build our brands.
Key responsibilities include achieving volume and profit targets, managing the joint customer business plan and partnering on customer initiatives within the Coles Group. Fostering Strong customer engagement will be a key measure of success.
To be successful in this role you will enjoy being part of a collaborative team and possess a strong record of achievement in a previous senior marketing, category and/or key account management role. You will also possess:

strong business acumen and analytical skills
proven ability to successfully partner and negotiate with internal and external customers
strong people management and coaching skills
demonstrated previous key account management experience with sophisticated customers
significant knowledge of the FMCG environment (within a highly competitive grocery category would be welcomed)
relevant tertiary qualifications will be highly regarded (Marketing/Business/Commerce)

If you meet these skills and qualifications we look forward to receiving your application.

Brave warriors taking on the fight to rein in the power of Coles and Woolworths

This morning I listened to Radio National’s Hagar Cohen expose CASUALTIES IN THE SUPERMARKET WAR. It sent shudder’s down my spine and left me feeling sick in the stomach. You can hear the full podcast here

Background

The consumer watchdog is investigating Coles and Woolworths for allegations they abuse their dominance. The ‘Big Two’ control over 70 per cent of the grocery market.

As part of its well-known ‘down down’ campaign, Coles cut prices across a large number of food products in its stores nationwide. The company had always claimed that it absorbed the cost of those discounts through making its business work more efficiently. But now Mr McLeod concedes that the supermarket has been passing on the cost of the discounts to some suppliers.

The food industry has been going through a major restructure, with manufacturers finding it tough to operate in Australia because of the high Australian dollar, increasing labour costs and the supermarkets’ behaviour. Many are operating on wafer thin margins, while others have already collapsed.

Food producers are claiming their margins are being squeezed by the supermarkets’ appetite for profits, and one supplier has now alleged blackmail in confidential evidence supplied to the ACCC.

During the initial stages of the ACCC’s investigation into the supermarkets’ conduct, over 50 producers have approached them, on the condition of confidentiality.

‘Speaking to the ACCC, it puts these things out in the open,’ the anonymous supplier says. ‘Companies understand that it’s not isolated situations that they go through.’ This supplier claims he’s been blackmailed by a supermarket buyer.

‘At some stage we started feeling—and this is what I hear from other companies as well—that their behaviour was really blackmailing,’ the supplier says. ‘The supermarkets expect a certain quantity of sales from your products and if that is not met they request a lump sum of money to be passed on to pay for that shortfall. Or another example is being asked to pay to be on the shelf in the first place, and that would mean a lump sum that has to be paid.’

I spent a whole day with Hagar. At this stage people willing to speak out where few and far between but as you will see when you listen to the program many have now drawn a line in the sand and are helping pave the way for much needed change

I applaud the other gutsy suppliers, farmers and manufactures (and there were a lot of them – some who preferred to speak through pseudonyms and actors) who spoke out on out on Background Briefing. These brave warriors are taking on the fight for everyone in their efforts to rein in the power of Coles and Woolworths and get some balance and equity in the supply chain.

Firstly lets take a look at what the ACCC has unearthed and what it is investigating as a result of the initial 50 suppliers coming forward

From ACCC Chairman Rod Sims.

‘it is clear that both farmers and suppliers are terrified of it ever been known that they made the allegations’

Allegations include

Persistent demands from supermarkets for additional payments from suppliers above and beyond the negotiated terms of trade
Threats to remove products from shelves or disadvantage suppliers if claims for extra penalties were not met
Failure to pay suppliers negotiated contract prices
Conduct discriminating in favour of house brands

Radio National found examples like

Suppliers being charged an additional fee for

for using the supermarket technology system for ordering even though it only improves efficiency in the supermarket business and has no real benefit for the supplier
Love this one – a fee for customer breakages i.e. if the customer drops something or decide they don’t want a frozen product and leave it on the shelf somewhere else ( I despise people who do this) – a percentage is taken from the supplier to cover in store incidents irrespective of whether breakages occur or not

This extract from Tony Lutfi CEO of Green Wheat Freekeh is also a classic example

Here are just a few more things I pulled out of the Background Briefing expose that sent shudders down my spine

The example involving CRF was the most frightening one to me. How Coles got away with this I don’t know. If this isn’t unconscionable behaviour I don’t what is ?

Hagar interviewed Simon Ramsay former board member of CRF (nice website check it out) and now Member of Upper House in Victoria. Colac based CRF had a 10 year contract with Coles to supply lamb. Coles accounted for 90 per cent of CRF business and CRF was Colac’s biggest employer. In the eighth year of their contract CRF was put on the market. ‘Coles put in a bid that was 60% below the price shareholders eventually accepted’ said Simon Ramsay. Coles then told the lamb processor it would no longer buy CRF meat if it was sold to a rival consortium.

Coles’ actions seemed “like a classic dummy spit to me. We believe we gave Coles a very competitive price and good quality product,” Mr Ramsay said.

You can read more about this very chilling story in the The Weekly Times Coles dumps CRF. According to TWT the rival consortium withdrew its bid and Coles was left last bidder standing, but an 11th-hour bid from a new consortium EC Agribusiness saw CRF shareholders refuse Coles’ bid for the company. Coles re-opened a tender for its business and chose Brazilian-owned meat processing giant JBS Swift over CRF, ending a 10-year relationship. Good news story CRF is now trading well

Rosella, Australia’s most famous brand of tomato sauce went out of production this month when the factory that produces it in Sydney closed down and over 70 full-time employees lost their jobs. Rosella’s parent company Gourmet Food Holdings went into receivership in November. Gourmet Food Holdings also owns other well-known Australian food brands like Aristocrat.

Mr Fawcett sold Aristocrat to Gourmet Food four years ago. When he owned the business, he told Hagar that he relied on Coles and Woolworths as his two main customers.

‘Coles and Woolworths would represent around 62 to 63 per cent overall …. If you lost those two customers it would be death’ Mr Fawcett says

He says that large orders from the ‘Big Two’ retailers meant his company was producing 200 jars a minute, or around five semi-trailers a day. Such large orders meant that if his company had fallen foul of either of the major retailers, Aristocrat would likely have collapsed.

‘You’d have to reconsider whether or not you continued in business,’ he says. ‘The amount of money you spent on machinery—you just had to make that machinery work. If it didn’t work you’re in all sorts of trouble.’

And from the independent supermarkets

Fred Harrison CEO of Richie’s IGA . Fred says he participating in price wars against his conscious ‘We have got to compete. 90% of customers applaud us but 10% wont. We do stock a small amount of $1 per litre milk for those 10% but we promote the brands. We do this because we can’t afford to lose 10% of our customer base. I know I am playing into the hands of duopoly and it has had a big impact on our business … in fact it has halved our profitability. He went on to warn ‘when you remove layers of competition the powerful players can charge whatever they like – consumers will eventually lose’

I too spoke at length to Hagar. I was initially very wary of being interviewed for the program for a number of reasons which didn’t involve a fear of retribution. However Hagar is an absolute delight and after much consideration agreed. In the end 99.9% of what I had to say hit the cutting room floor but I did do a day’s prep for the interview and spoke to many experts before I decided what I wanted and didn’t want to say. I will share this with you in another blog post shortly